There comes a time for most businesses where new equipment is an absolute necessity for increased efficiency, increased output or new product lines. But while new equipment presents great opportunities, it can also come with significant costs. Finding the money to pay for it can be a challenge.
That’s why it’s important for decision makers to consider the benefits and drawbacks of their procurement options.
Does it make more sense to take out a loan to buy the equipment outright or to lease the equipment? The right answer will differ depending on a number of factors that are unique to each company. If you’re facing this decision in the near future, here are four factors you should consider before making up your mind.
What’s better from a tax perspective?
- As far as taxes are concerned, there are substantial differences between a lease and a purchase. If you choose to lease your equipment, your payments will be counted as an operating expense, thereby reducing your tax burden. Make sure you factor the tax savings into your calculations in order to get the most accurate idea of the cost of leasing your equipment.
- If you choose to purchase your equipment outright, you are allowed to make depreciation deductions based on the type and cost of your equipment.
When will the equipment be obsolete?
- If the equipment you’re looking to acquire is something that will need to be upgraded significantly or become more efficient in the next five years, you may find that leasing makes more sense.
- On the other hand, if the equipment is likely to have more or less the same capabilities five years from now that it has today, ownership may be a good route to take.
What are your company’s financial priorities?
- Even if your company has the money or the ability to secure a loan to purchase a new piece of equipment, you may still decide that leasing is the better route to take for your current situation. It all depends on your working capital needs.
- If you have other things that you’ll need to spend money on in the near future, such as hiring needs, marketing promotions or other equipment, leasing may make more sense for your company. Leasing comes with lower upfront costs, freeing up the money you have on hand to be used on these other priorities.
Do you want the option to purchase at the end of the lease?
- Emprise Bank can create a provision in a lease contract that allows for the purchase of equipment at the end of the lease agreement. This can be decided upfront so that the lease agreement includes a buyout clause. A lease with a buyout clause allows your company to avoid spending a lot of money up front (freeing up capital during the life of the lease) while also allowing for full ownership of the equipment in the future.
If you’re looking into leasing or purchasing equipment, Emprise Bank can help work with you to evaluate which option makes the most sense for your business. We’ll give you honest, straightforward advice and quick turnaround for your financing decision.
Click here to learn more about our leasing options through CashFlow LEASE.
Article provided by BancLease